1. Gokongwei v. Sec

Pamatian 1. Gokongwei Jr. v. SEC, et. al. – 89 SCRA 336 Aldeosa 2. Grace Christian High School v. CA – GR No. 108905; Oct. 23, 1997 Comia 3. Thomson v. CA – 298 SCRA 280 Caisido 4. Salafranca v. Philamlife (Pamplona) Homeowners Asso. – 300 SCRA 469 Villasin5. China Banking Corp. v. CA – 270 SCRA 503 Fangayen 6. Republic Planters Bank v. Agana – GR 51765; March 3, 1997 Alvarez 7. COCOFED v. RP – GR Nos. 177857-58; 178193; 180705 Cero 8. Garcia v. Lim Chu Sing – 59 Phil 562 Tria 9. Apodaca v. NLRC – 172 SCRA 442 Ballesta 10. National Exchange v. Dexter – 51 Phil 601 Zapata 11. Velasco v. Poizat – 37 Phil 802 Cervantes 12. Lingayen Gulf Electric v. Baltazar – 93 Phil 404 Gaite 13. Da Silva v. Aboitiz – 44 Phil 755 Garcia 14. Lumanlan v. Cura – 59 Phil 746 Concordia 15. China Banking Corp. v. CA – GR 117604; March 26, 1997 Arpafo 16. Fua Chin v. Summers, et. al. – 44 Phil 704 Chua 17. Baltazar v. Lingayen Gulf – 14 SCRA 522 Rojas 18. Nava v. Peers Mktg. Corp. – 76 SCRA 65 Diaz 19. Tan v. SEC – 206 SCRA 740 Briones 20. Nautica Canning Corp. Yumul – GR 164588; Oct. 19, 2005 Gutierrez 21. Lao v. Lao – GR 170585; Oct. 6, 2008

1. G.R. No. L-45911

April 11, 1979

JOHN GOKONGWEI, JR., petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents. DOCTRINE: The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as

director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. FACTS: Petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. SEC case 1375 As a first cause of action-----(1976) individual respondents amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders.

As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a Substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are null and void. 1 As additional causes of action, it was alleged that: 1. corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; 2. that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with respondent corporation, which was allowed because the questioned

amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; 3. that the portion of the amended bylaws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and 4. that the portion of the amended by-laws which requires that "all nominations for election of directors ... shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive.

In view of the fact that the annual stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of Respondent Corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting.

Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. SEC. CASE NO. 1423 Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law. ---------With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it.

Issues:

1. Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved 2. Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable 3. Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc., a fully owned subsidiary of San Miguel Corporation HELD: 1. Yes. It is settled that the doctrine of primary jurisdiction has no application where only a question of law is involved. 8a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be determined in the first instance by courts. 8b In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders.

2. Yes. Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained selfinterest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. A. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW -- In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees ... " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director ... " In Government v. El Hogar, 14 the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice. "

B. NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR -- Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation If the amendment changes, diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification.

C. AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID -- section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. 28 3. YEs. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a ownership. This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly subsidiary which are in respondent corporation's possession and control.

WHEREFORE, judgment is hereby rendere GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, insofar as it assails the validity of the amended by- laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs. 02. Grace Christian High School vs Court of Appeals G.R. No. 108905 October 23, 1997 MENDOZA, J.: FACTS: Grace Christian High School (GCHS) is an educational institution in Grace Village (QC). Grace Village Association, Inc. (GVAI) is the homeowners association in Grace Village. GVAI has an existing by-laws which was already in effect since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in taking a permanent seat. Thereafter, an election was scheduled for the 15 seat in the board. GCHS opposed the election as it insists that the election should only be for 14 directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such its right has already vested. ISSUE: WON the representative from Grace Christian High School should be allowed to have a permanent seat in the board of directors. HELD: No. The Corporation Code is clear when it provides that members of the board of a corporation must be elected by the stockholders (stock corporation) or the members (non-stock corporation). Admittedly, there are corporations who allow some of their directors to sit in the board without being elected – but such practice cannot prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Further, there is no reason as to why a representative from GCHS should be given an automatic seat. It should therefore go through the process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it is void and contrary to the law. GCHS’ seat in the corporate board is at best merely tolerated by GVAI. 3. G.R. No. 116631 October 28, 1998 MARSH THOMSON, petitioner, vs. COURT OF APPEALS and THE AMERICAN CHAMPER OF COMMERCE OF THE PHILIPPINES, INC,respondents. FACTS Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the Management Consultant of private respondent, the American Chamber of Commerce of the Philippines, Inc. (AmCham) for over ten years. While petitioner was still working with private respondent, his superior, A. Lewis Burridge, retired as AmCham's President. Before Burridge decided to return to his home country, he wanted to transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through the intercession of Burridge, private respondent paid for the

share but had it listed in petitioner's name. This was made clear in an employment advice dated January 13, 1986, wherein petitioner was informed by private respondent. Burridge transferred said proprietary share to petitioner, as confirmed in a letter 3 of notification to the Manila Polo Club. Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00 from his own funds; but private respondent subsequently reimbursed this amount. MPC issued Proprietary Membership Certificate Number 3398 in favor of petitioner. But petitioner, however, failed to execute a document recognizing private respondent's beneficial ownership over said share. Following AmCham's policy and practice, there was a yearly renewal of employment contract between the petitioner and private respondent. Separate letters of employment advice dated October 1, 1986 4, as well March 4, 1988 5 and January 7, 1989 6, mentioned the MPC share. But petitioner never acknowledged that private respondent is the beneficial owner of the share as requested in follow-up requests. When petitioner's contract of employment was up for renewal in 1989, he notified private respondent that he would no longer be available as Executive Vice President after September 30, 1989. Still, the private respondent asked the petitioner to stay on for another six (6) months. Petitioner indicated his acceptance of the consultancy arrangement with a counter-proposal. Pending the negotiation for the consultancy arrangement, private respondent executed on September 29, 1989 a Release and Quitclaim, 9 stating that "AMCHAM, its directors, officers and assigns, employees and/or representatives do hereby release, waive, abandon and discharge J. MARSH THOMSON from any and all existing claims that the AMCHAM, its directors, officers and assigns, employees and/or representatives may have against J. MARSH THOMSON." 10 The quitclaim, expressed in general terms, did not mention specifically the MPC share. On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding the return and delivery of the MPC share which "it (AmCham) owns and placed in your (Thomson's) name." 11 Failing to get a favorable response, private respondent filed on May 15, 1990, a complaint against petitioner praying, inter alia, that the Makati Regional Trial Court render judgment ordering Thomson "to return the Manila Polo Club share to the plaintiff and transfer said share to the nominee of plaintiff. The trial court awarded the MPC share to defendant (petitioner now) on the ground that the Articles of Incorporation and By-laws of Manila Polo Club prohibit artificial persons, such as corporations, to be club members. The Court of Appeals (Former Special Sixth Division) promulgated its decision , reversing the, trial court's judgment and ordered herein petitioner to transfer the MPC share to the nominee of private respondent. ISSUE: Whether or not private respondent is a beneficial owner of the disputed share. HELD: Yes. The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely a personal claim against the debtor. In trust, there is a fiduciary relation between a trustee and a beneficiary, but there is no such relation between a debtor and creditor. While a debt implies merely an obligation to pay a certain sum of money, a trust refers to a duty to deal with a specific property for the benefit of another. If a creditor-debtor relationship exists, but not a fiduciary relationship between the parties, there is no express trust. However, it is understood that when the

purported trustee of funds is entitled to use them as his or her own (and commingle them with his or her own money), a debtor-creditor relationship exists, not a trust. In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary position in the business of AmCham. AmCham released the funds to acquire a share in the Club for the use of petitioner but obliged him to "execute such document as necessary to acknowledge beneficial ownership thereof by the Chamber". 22 A trust relationship is, therefore, manifestly indicated. Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor when the private respondent paid the purchase price of the MPC share. Applicable here is the rule that a trust arises in favor of one who pays the purchase money of property in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. 4. Salafranca v. Philamlife (Pamplona) Homeowners Asso. – 300 SCRA 469 G.R. No. 121791 FAcTS: Enrique Salafranca started working with the private respondent Philamlife Village Homeowners Association on May 1, 1981 as administrative officer for a period of six months. From this date until December 31, 1983, petitioner was reappointed to his position three more times. As administrative officer, petitioner was generally responsible for the management of the village's day to day activities. After petitioner's term of employment expired on December 31, 1983, he still continued to work in the same capacity, albeit, without the benefit of a renewed contract. Sometime in 1987, private respondent decided to amend its by-laws. Included therein was a provision regarding officers, specifically, the position of administrative officer under which said officer shall hold office at the pleasure of the Board of Directors.Private respondent informed the petitioner that his term of office shall be coterminus with the Board of Directors which appointed him to his position. Furthermore, until he submits a medical certificate showing his state of health, his employment shall be on a month-to-month basis. Oddly, notwithstanding the failure of herein petitioner to submit his medical certificate, he continued working until his termination in December 1992. Claiming that his services had been unlawfully and unceremoniously dispensed with, petitioner filed a complaint for illegal dismissal with money claims and for damages. ISSUE: 1.Whether or not the employment of the Petitioner is not purely based on considerations of Employer-Employee relationship. 2.Whether or not Petitioner was illegally dismissed by private respondents. 1. YES, The first element is present in this case. Petitioner was hired as Administrative Officer by respondents. In fact, he was extended successive appointments by respondents.The second element is also present since it is not denied that respondent PVHA paid petitioner a fixed salary for his services. As to the third element, it can be seen from the Records that respondents had the power of dismissal over petitioner.With respect to the fourth and most important element, respondents controlled the work of petitioner not only with respect to the ends to be achieved but also the means used in reaching such ends. 2.YES, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced by his eleven years of service with the private respondent. While private respondent has the right to terminate the services of petitioner, this is subject to both substantive and procedural grounds.private respondent utterly failed to substantiate petitioner's dismissal, rendering the latter's termination illegal. At the risk of being redundant, it must be stressed that these requirements are mandatory and non-compliance therewith renders any judgment reached by the management void and inexistent.private respondent imputes "gross negligence," and "serious misconduct" as the

causes of petitioner's dismissal, 18 not a shred of evidence was offered in support thereof, other than bare and uncorroborated allegations. 5. China Banking Corporation vs. Court of Appeals G.R. No. 117604, 26 March 1997 FACTS: Galicano Calapatia, Jr., a stockholder of Valley Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate No. 1219 to China Banking Corporation (CBC). CBC wrote VGCCI requesting that the pledge agreement be recorded in its books. In a letter, VGCCI replied that the deed of pledge executed by Calapatia in CBC's favor was duly noted in its corporate books. Calapatia obtained a loan of P20,000.00 from CBC, payment of which was secured by the pledge agreement still existing between Calapatia and CBC. Due to Calapatia's failure to pay his obligation, CBC filed a petition for extrajudicial foreclosure, requesting for a public auction sale of the pledged stock. CBC informed VGCCI of the foreclosure proceedings and requested that the pledged stock be transferred to its name and the same be recorded in the corporate books. However, VGCCI wrote CBC expressing its inability to accede to CBC's request in view of Calapatia's unsettled accounts with the club. Despite the foregoing, a public auction was held on 17 September 1985 and CBC emerged as the highest bidder at P20,000.00 for the pledged stock. Consequently, CBC was issued the corresponding certificate of sale. VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount of P18,783.24. Said notice was followed by a demand letter for the same amount and another notice for P23,483.24. VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own share of stock (Stock Certificate No. 1219). Through a letter, VGCCI informed Calapatia of the termination of his membership due to the sale of his share of stock in the 10 December 1986 auction. CBC advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued in its name. VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00. CBC protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the Makati RTC for the nullification of the 10 December 1986 auction and for the issuance of a new stock certificate in its name. The Makati RTC dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute and it denied CBC's motion for reconsideration. CBC filed a complaint with the SEC for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of litigation. The SEC Hearing Officer ruled in favor of VGCCI, stating that considering that the said share is delinquent, VGCCI had valid reason not to transfer the share in the name of CBC in the books of VGCCI until liquidation of delinquency. Consequently, the case was dismissed. The Hearing Officer denied CBC's motion for reconsideration. CBC appealed to the SEC en banc which issued an order reversing the decision of its hearing officer; holding that CBC has a prior right over the pledged share and because of pledgor's failure to pay the principal debt upon maturity, CBC can proceed with the foreclosure of the pledged share; declaring that the auction sale conducted by VGCCI on 10 December 1986 is declared NULL and VOID; and ordering VGCCI to issue another membership certificate in the name of CBC. VGCCI sought reconsideration of the order. However, the SEC denied the same. The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. The Court of Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of lack of

jurisdiction over the subject matter and, consequently, dismissed CBC's original complaint. The Court of Appeals declared that the controversy between CBC and VGCCI is not intra-corporate; nullifying the SEC orders and dismissing CBC’s complaint. CBC moved for reconsideration but the same was denied by the Court of Appeals. CBC filed the petition for review on certiorari. ISSUE: Whether CBC is bound by VGCCI's by-laws. HELD: In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into. At the time the pledge agreement was executed VGCCI could have easily informed CBC of its by-laws when it sent notice formally recognizing CBC as pledgee of one of its shares registered in Calapatia's name. CBC's belated notice of said bylaws at the time of foreclosure will not suffice. By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. The purpose of a by-law is to regulate the conduct and define the duties of the members towards the corporation and among themselves. They are self-imposed and, although adopted pursuant to statutory authority, have no status as public law. Therefore, third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. For the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the VGCCI By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledgee's right over the pledged share. Article 2087 of the Civil Code provides that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists maybe alienated for the payment to the creditor. Further, VGCCI's contention that CBC is dutybound to know its by-laws because of Article 2099 of the Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family, fails to convince. CBC was never informed of Calapatia's unpaid accounts and the restrictive provisions in VGCCI's by-laws. Furthermore, Section 63 of the Corporation Code which provides that ―no share of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation‖ cannot be utilized by the corporation to refuse to recognize ownership over pledged shares purchased at public auction. The term ―unpaid claims‖ refers to ―any unpaid claims arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transactions. Obligations arising from unpaid monthly dues do not fall within the coverage of Section 63. Herein, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, Section 63 does not apply. 6. Republic Planters Bank vs. Agana Case Digest Republic Planters Bank vs. Agana [GR 51765, 3 March 1997] Facts: On 18 September 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent such amount partially in the form of money and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes.

Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2 years from the date of issue at the option of the Corporation." On 31 January 1979, RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have the bank redeem the same under the terms and conditions of the stock certificates. The bank filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under substantive law; and (3) that the action was barred by the statute of limitations and/or laches. The bank's Motion to Dismiss was denied by the trial court in an order dated 16 March 1979. The bank then filed its Answer on 2 May 1979. Thereafter, the trial court gave the parties 10 days from 30 July 1979 to submit their respective memoranda after the submission of which the case would be deemed submitted for resolution. On 7 September 1979, the trial court rendered the decision in favor of RFRDC and Robes; ordering the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment. The bank filed the petition for certiorari with the Supreme Court, essentially on pure questions of law. Issue:

1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes. 2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of right without necessity of a prior declaration of dividend.

Held: 1. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power. 2. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. In compelling the bank to redeem the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law.

8. Garcia v. Lim Chu Sing (1934)1)Lim Chu Sing executed and delivered a PN to a Bank in the amount of P19, 605 secured by a chattel mortage.2)Lim Chu Sing is a SH of the Bank (in the amount of P10, 000).3)Bank is now under liquidation.4)The proceeds from the sale of the mortgaged chattel and the payment leftwere applied to Lim Chu Sing’s debt to the Bank.5)Lim Chu Sing had a remaining debt of P9, 105 to the Bank.6)Lim Chu Sing wants to compensate his P9, 105 debt to the Bank w/ theP10, 000 amount of his Stocks.ISSUE:WON it is proper to compensate the Defendant’s indebtedness of P9,105 with the Bank, with the P10,000 value of his shares of stockwith the Bank?HELD:Lim Chu Sing is not a creditor of the Bank, hence there is noground to justify a compensation.A share of stock or the certificate thereof is not an indebtedness to theowner nor evidence of indebtedness and therefore, it is not a credit. SHs are notcreditors of the C

A share of stock is not an indebtedness to the owner nor evidence of indebtedness and therefore not a credit. SHS are not creditors of the corp. The capital stock of a corp is a trust fund to be used more particularly for the security of the creditors of the corp, who presumably deal with it on the credit of its capital stock Instances where SH can be a creditor: 1) upon dissolution after corp debts are paid 2) when dividends declared Pre-Incorporation Subscription Sec 13 Amount of the Capital Stock to be Subscribed and Paid for Purposes of Incorporation – At least 25% of the authorized capital stock as stated in the articles of incorporation , and at least 25% of the total subscription must be paid upon subscription, the balance to be payable on the date(s) fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call by the BOD: Provided, however, That in no case shall the paid up capital be less than P5,000 Effect of pre-incorporation subscription When a group of persons sign a subscription contract, they are deemed not only to make a continuing offer to the corp but also to have contracted with each other as well. No one of them may revoke the contract even prior to incorp without consent of all others Sec 61 Pre-Incorporation Subscription A subscription for shares of stock of a corp still to be formed shall be irrevocable for a period of at least 6 months from the date of subscription, unless all of the other subscribers consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of AI to the SEC Once formed, not even the corp can release the subscriber from the obligation to pay unpaid subscription. The SH may however resist compliance if a diff corp as contemplated is formed, or there are serious defects in the incorp prejudicial to SH, unless the acts show estoppel, waiver or acquiescence If a pre-incorporation subscriber is not satisfied with the way the promoters are handling pre-incorporation matters, he is free to get out of the venture after such period, regardless of what other pre-incorporation subscribers feel about the matter. Post-Incorporation Subscription Corp Code erased distinction between subscription and purchase Sec 60 Subscription Contract - Any contract for the acquisition of unissued stock in an existing corp or a corp still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract Sec 80 Rights of Unpaid Shares - Holders of subscribed shares are not fully paid which are not delinquent shall have all the rights of a SH Since a subscriber is a debtor to the corp, it remains liable to pay the balance of the subscription price even if the corp should subsequently become insolvent

9. G.R. No. 80039 April 18, 1989 ERNESTO M. APODACA, petitioner, v. NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL and INTRANS PHILS., INC., respondents. GANCAYCO, J.: FACTS: Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation. However, on January 2, 1986, he resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscription in the amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the payment of the unpaid subscription and that, accordingly, the alleged obligation is not enforceable. LABOR ARBITER: sustained the claim of petitioner for P17,060.07 on the ground that the employer has no right to withhold payment of wages already earned under Article 103 of the Labor Code. NLRC: the decision of the labor arbiter was reversed in a decision. The NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes a debtor of the corporation and that the set-off of said obligation against the wages and others due to petitioner is not contrary to law, morals and public policy. ISSUES: 1. Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a corporation? 2. Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the employer? RULING: Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. 1 Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this case, the unpaid subscriptions are not due and payable until a call is made by the corporation

for payment. 2 Private respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation. What the records show is that the respondent corporation deducted the amount due to petitioner from the amount receivable from him for the unpaid subscriptions. 3 No doubt such set-off was without lawful basis, if not premature. As there was no notice or call for the payment of unpaid subscriptions, the same is not yet due and payable. Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot validly set it off against the wages and other benefits due petitioner. Article 113 of the Labor Code allows such a deduction from the wages of the employees by the employer, only in three instances, to wit: ART. 113. Wage Deduction. — No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except: (a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance; (b) For union dues, in cases where the right of the worker or his union to checkoff has been recognized by the employer or authorized in writing by the individual worker concerned; and (c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.

10. Case: National Exchange v Dexter Facts: Respondent subscribed to the corporate stock of CS Salmon & Co. amounting to P30,000, which was to be paid from the first dividends to be declared on the shares of the said company. The payments will be taken from the dividends Dexter will be receiving on his shares, until the full price or value of such shares have been fully paid. An initial amount of P15,000 was paid from the dividends of Dexter’s shares as declared by the company. However, no other dividend was thereafter declared by the company, and thus, no other payment was made for the subscription. The National Exchange became the assignee of CS Salmon, who instituted an action in the CFI to recover the remaining amount from Dexter. The CFI ruled in favor of National Exchange, thus, Dexter appealed to the SC. Issue: Whether the stipulation contained in the subscription to the effect that the subscription is payable from the first dividends declared on the shares has the effect of relieving the subscriber from personal liability in an action to recover the value of the shares, and if such stipulation is valid. Held: The said stipulation is unlawful. It obligates the subscriber to pay nothing for the shares except dividends as may accrue upon the stock. In the contingency that the dividends are not paid, there is no liability at all, and as such creates a discrimination in favor of a particular subscriber. Dexter must pay for the amount claimed with interest. The law prohibits the issuance of shares by corporations except for actual cash to the par value of the stock or its full equivalent in property actually received by it at a fair valuation equal to the par value of the stock or bonds so issued 11. MIGUEL VELASCO vs. JEAN M. POIZAT

G.R. No. L-11528 March 15, 1918 STREET, J.: Facts: : The Philippine Chemical Product Co. submitted a resolution in a board meeting, in which they released Infante, a stockholder, from his obligation of paying his unpaid subscription in the amount of P1,500 and it is conditioned upon his surrendering his certificates of shares of stock. In the same resolution, Poizat was obligated to shell out the amount of his subscription valued at P1,500, and if he should refuse to make payment, judicial proceedings against him may be undertaken by the corporation through its management. Thereafter, the company underwent voluntary insolvency proceedings. The assignee of the company, Velasco, sought to recover the amount owed by Poizat. Nevertheless, the latter denied any accountability to pay the amount. Poizat asserted the invalidity of making the call, and he asserted that he was given the same rights as that given to Infante. The CFI dismissed the complaint filed by Velasco against Poizat. Thus, Velasco appealed to the SC. Issue: Whether or not Poizat is liable upon his subscription. Ruling: The court ruled in the affirmative. A stock subscription is a contract between the corporation and the subscriber, and the courts will enforce it either for or against the other. The law recognizes that a stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from the date of the subscription, unless he is relieved from such liability in the By-laws of the corporation. The subscriber is as much bound to pay for his subscription as he would any other debt. The law also provides 2 remedies to enforce stock subscriptions. The first consists in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of the delinquent subscriber. The other remedy is for the directors to file an action in court. An assignee of an insolvent corporation, by stepping into the shoes of the same, succeeds to all the corporate rights of action vested in the corporation prior to its insolvency, and the assignee therefore has the same freedom with respect to suing upon a stock subscription as the directors themselves would have. Also, when insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up, all unpaid stock subscriptions become payable on demand and are at once recoverable in an action instituted by the assignee or receiver appointed by the court. A subscriber cannot be permitted to escape his lawful obligation by reason of the failure of the officers of the corporation to perform their duty in making a call; and when the original mode of making the call becomes impracticable, the obligation must be deemed as being due upon demand. The judgment of the lower court is therefore reversed, and judgment will be rendered in favor of the plaintiff and against the defendant for the sum of one thousand five hundred pesos (P1,500), with interest from July 13, 1014, and costs of both instances. So ordered. 14. Lumanlan vs. Cura G.R. No. L-39861 March 21, 1934 FACTS: The plaintiff-appellee Bonifacio Lumanlan, subscribed for 300 shares of stock of said corporation at a par value of P50 or a total of P15,000. Julio Valenzuela, Pedro Santos and Francisco Escoto, creditors of this corporation, filed suit against it in the Court of First Instance of Manila, praying that a receiver be appointed, as it appeared that the corporation at that time had no assets except credits against those who had subscribed for shares of stock. The court named Tayag as receiver for the purpose of collecting, said subscriptions. As Bonifacio Lumanlan had only paid P1,500 of the P15,000, par value of the stock for which he subscribed, the receiver, filed a suit against him in the Court of First Instance ofManila, for the collection of the amount he owed for unpaid stock and for loans and advances by the corporation to Lumanlan. In that case Lumanlan was sentenced to pay the corporation the abovementioned sum of P15,109 with legal interest thereon. Lumanlan appealed from the said decision. With the permission of the court, the creditors, some of the directors and the majority of the stockholders held several meetings in which it was agreed in substance that subscribers for the capital stock who were in default should pay

the creditors; Lumanlan was designated to pay the debt of the corporation of to Julio Valenzuela. In view of an agreement between Lumanlan and Respondents, Lumanlan withdrew his appeal and paid Valenzuela the sum of P11,840 including interest and thereby was subrogated in place of Valenzuela. The petitioning creditors having been paid the amounts owed to them by the corporation asked that the receiver be dismissed and the court granted this. Disregarding this agreement and notwithstanding the payment made by Lumanlan to Valenzuela, the corporation still claimed from Lumanlan the amount of the subscriptions. The provincial sheriff levied upon two parcels of land belonging to Lumanlan. ISSUE: Whether or not the corporation has a right to collect all unpaid stock subscriptions and any other amounts which may be due it. RULING: Yes. It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which the creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. The Corporation Law clearly recognizes that a stock subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest quarterly from that date unless he is relieved from such liability by the by-laws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable. 17. G.R. No. L-4824 June 30, 1953 LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiff-appellant, 
vs.
IRINEO BALTAZAR, defendantappellee. x---------------------------------------------------------x G.R. No. L-6244 June 30, 1953 LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiff-appellee, 
vs.
IRINEO BALTAZAR, defendant and appellant. MONTEMAYOR, J.: FACTS: The plaintiff, Lingayen Gulf Electric Power Company is a domestic corporation with an authorized capital stock of P300,000 divided into 3,000 shares with a par value of P100 per share. The defendant, Irineo Baltazar appears to have subscribed for 600 shares on account of which he had paid upon the organization of the corporation the sum of P15,000. After incorporation, the defendant made further payments on account of his subscription, leaving a balance of P18,500 unpaid for, which amount, the plaintiff now claims in this action. On July 23, 1946, a majority of the stockholders of the corporation, among them the herein defendant, held a meeting and adopted stockholders' resolution No. 17. By said resolution, it was agreed upon by the stockholders present to call the balance of all unpaid subscribed capital stock as of July 23, 1946, the first 50 per cent payable within 60 days beginning August 1, 1946, and the remaining 50 per cent payable within 60 days beginning October 1, 1946. The resolution also provided, that all unpaid subscription after the due dates of both calls would be subject to 12 per cent interest per annum. Lastly, the resolution provided, that after the expiration of 60 days' grace which would be on

December 1, 1946, for the first call, and on February 1, 1947, for the second call, all subscribed stocks remaining unpaid would revert to the corporation. On September 22, 1946, the plaintiff corporation wrote a letter to the defendant reminding him that the first 50 per cent of his unpaid subscription would be due on October 1, 1946. The plaintiff requested the defendant to "kindly advise the company thru the undersigned your decision regarding this matter." The defendant answered on September 25, 1946, asking the corporation that he be allowed to pay his unpaid subscription by February 1, 1947. In his answer, the defendant also agreed that if he could not pay the balance of his subscription by February 1, 1947, his unpaid subscription would be reverted to the corporation. On December 19, 1947, the defendant wrote another letter to the members of the Board of Directors of the plaintiff corporation, offering to withdraw completely from the corporation by selling out to the corporation all his shares of stock in the total amount of P23,000. Apparently this offer of the defendant was left unacted upon by the plaintiff. On April 17, 1948, the Board of Directors of the plaintiff corporation held a meeting, and in the course of the said meeting they adopted Resolution No. 17. This resolution in effect set aside the stockholders resolution approved on June 23, 1946, on the ground that said stockholders' resolution was null and void, and because the plaintiff corporation was not in a financial position to absorb the unpaid balance of the subscribed capital stock. At the said meeting the directors also decided to call 50 per cent of the unpaid subscription within 30 days from April 17, 1948, the call payable within 60 days from receipt of notice from the Secretary-Treasurer. This resolution also authorized legal counsel of the company to take all the necessary legal steps for the collection of the payment of the call. On June 10, 1949, the stockholders of the corporation held another meeting in which the stockholders were all present, either in person or by proxy. At such meeting, the stockholders adopted resolution No. 4, whereby it was agreed to revalue the stocks and assets of the company so as to attract outside investors to put in money for the rehabilitation of the company. The president was authorized to make all arrangement for such appraisal and the Secretary to call a meeting upon completion of the reassessment. It was admitted by the defendant that he received notice from the Secretary-Treasurer of the company, demanding payment of the unpaid balance of his subscription. It was agreed by the parties that the call of the Board of Directors was not published in a newspaper of general circulation as required by section 40 of the Corporation Law. On September 28, 1949, the legal counsel of the plaintiff corporation wrote a letter to the defendant, demanding the payment of the unpaid balance of his subscription amounting to P18,500. Copy of this letter was sent by registered mail to the defendant on September 29,1949. The defendant ignored the said demand. ISSUES: 1. Whether or not the call was valid 2. Whether or not the defendant was released from the obligation of the unpaid balance of his subscription by virtue of stockholders' resolution Nos. 17 and 4 HELD: 1. No. The law requires that notice of any call for the payment of unpaid subscription should be made not only personally but also by publication. This is clear from the provisions of section 40 of the Corporation Law, Act No. 1459, as amended, which reads as follows:

SEC. 40. Notice of call for unpaid subscriptions must be either personally served upon each stockholder or deposited in the post office, postage prepaid, addressed to him at his place of residence, if known, and if not known, addressed to the place where the principal office of the corporation is situated. The notice must also be published once a week for four successive weeks in some newspaper of general circulation devoted to the publication of general news published at the place where the principal office of the corporation is established or located, and posted in some prominent place at the works of the corporation if any such there be. If there be no newspaper published at the place where the principal office of the corporation is established or located, then such notice may be published in any newspaper of general news in the Philippines. It will be noted that section 40 is mandatory as regards publication, using the word "must". As correctly stated by the trial court, the reason for the mandatory provision is not only to assure notice to all subscribers, but also to assure equality and uniformity in the assessment on stockholders. 2. No. The authorities are generally agreed that in order to effect the release, there must be unanimous consent of the stockholders of the corporation. We quote some authorities: ―Subject to certain exceptions, considered in subdivision (3) of this section, the general rule is that a valid and binding subscription for stock of a corporation cannot be cancelled so as to release the subscriber from liability thereon without the consent of all the stockholders or subscribers. Furthermore, a subscription cannot be cancelled by the company, even under a secret or collateral agreement for cancellation made with the subscriber at the time of the subscription, as against persons who subsequently subscribed or purchased without notice of such agreement. (3) Exceptions. In particular circumstances, as where it is given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release, supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing creditors. A release which might originally have been held invalid may be sustained after a considerable lapse of time.‖ In the present case, the release claimed by defendant and appellant does not fall under the exception above referred to, because it was not given pursuant to a bona fide compromise, or to set off a debt due from the corporation, and there was no consideration for it. 18. Corporate Law Case Digest: Nava v. Peers Marketing Corp. (2006)

G.R. No. L-28120 November 25, 1976 Lessons Applicable: Stock and Transfer Book

FACTS: Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation at P100 PV and paid 25%. No certificate of stock was issued to him or to any incorporator, subscriber or stockholder.

April 2, 1966: Po sold to Ricardo A. Nava for P2,000 20 of 80 shares Nava requested to register the sale in the books of the corporation. denied - Po has not paid fully the amount of his subscription Po was delinquent of the balance due so the corporation claimed on his entire subscription of which included 20 shares sold to Nava. December 21, 1966: Nava filed this mandamus to register 20 shares in Nava's name in the corporation's transfer book. CFI: court dismissed the petition Nava appealed on the basis that Section 37: "no certificate aof stock shall be issued to a subscriber as fully paid up until the full par value thereof, or the full subscription in case of no par stock, has been paid by him to the corporation" ISSUE: W/N officers of Peers Marketing Corporation can be compelled by mandamus to enter in its stock and transfer book the sale made

HELD: NO. dismissal affirmed. no provision of the by-laws of the corporation covers that situation SEC. 35. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the, parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred. No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. SEC. 36. (re voting trust agreement) ... The certificates of stock so transferred shall be surrendered and cancelled, and new certificates

therefor issued to such person or persons, or corporation, as such trustee or trustees, in which new certificates it shall appear that they are issued pursuant to said agreement. A stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his subscription as he would be to pay any other debt. The right of the corporation to demand payment is no less incontestable. no clear legal duty on the part of the officers of the corporation to register the 20 shares in Nava's name - no cause of action for mandamus. Baltazar case: partial payment = entitled to vote the said shares although he has not paid the balance of his subscription and a call or demand had been made for the payment of the par value of the delinquent shares Without stock certificate, which is the evidence of ownership of corporate stock, the assignment of corporate shares is effective only between the parties to the transaction delivery of the stock certificate, which represents the shares to be alienated , is essential for the protection of both the corporation and its stockholders 19. Corporate Law Case Digest: Nava v. Peers Marketing Corp. (2006) G.R. No. L-28120 November 25, 1976 Lessons Applicable: Stock and Transfer Book FACTS: 

Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation at P100 PV and paid 25%. No certificate of stock was issued to him or to any incorporator, subscriber or stockholder.



April 2, 1966: Po sold to Ricardo A. Nava for P2,000 20 of 80 shares



Nava requested to register the sale in the books of the corporation. o

denied - Po has not paid fully the amount of his subscription

o

Po was delinquent of the balance due so the corporation claimed on his entire subscription of which included 20 shares sold to Nava.



December 21, 1966: Nava filed this mandamus to register 20 shares in Nava's name in the corporation's transfer book.



CFI: court dismissed the petition



Nava appealed on the basis that

o

Section 37: "no certificate of stock shall be issued to a subscriber as fully paid up until the full par value thereof, or the full subscription in case of no par stock, has been paid by him to the corporation"

ISSUE: W/N officers of Peers Marketing Corporation can be compelled by mandamus to enter in its stock and transfer book the sale made

HELD: NO. dismissal affirmed. 

no provision of the by-laws of the corporation covers that situation



SEC. 35. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or the vice-president, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the, parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred. No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.



SEC. 36. (re voting trust agreement) ... The certificates of stock so transferred shall be surrendered and cancelled, and new certificates therefor issued to such person or persons, or corporation, as such trustee or trustees, in which new certificates it shall appear that they are issued pursuant to said agreement.



A stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his subscription as he would be to pay any other debt. The right of the corporation to demand payment is no less incontestable.



no clear legal duty on the part of the officers of the corporation to register the 20 shares in Nava's name no cause of action for mandamus.



Baltazar case: partial payment = entitled to vote the said shares o

although he has not paid the balance of his subscription and a call or demand had been made for the payment of the par value of the delinquent shares



Without stock certificate, which is the evidence of ownership of corporate stock, the assignment of corporate shares is effective only between the parties to the transaction



delivery of the stock certificate, which represents the shares to be alienated , is essential for the protection of both the corporation and its stockholders

20. Nautica Canning Corp, First Dominion Prime Holdings, Inc. & Fernando Arguelles VS. Roberto Yumul G.R. No. 164588, October 19, 2005 FACTS: On December 19, 1994, respondent Roberto C. Yumul was appointed Chief Operating Officer/General Manager of Nautica with a monthly compensation of P85,000 and an additional compensation equal to 5% of the company’s operating profit for the calendar year. On the same date, First Dominion Prime Holdings, Inc., Nautica’s parent company, through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it subscribed from Nautica. On June 22, 1995, a Deed of Trust and Assignment was executed between First Dominion Prime Holdings, Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated that the 14,999 ―shares were acquired and paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf of and in trust for the ASSIGNEE.‖ In March 1996, Nautica declared a P35,000,000 cash dividend, P8,250,000 of which was paid to Yumul representing his 15% share. After Yumul’s resignation from Nautica on August 5, 1996, he wrote a letter to Dee requesting the latter to formalize his offer to buy Yumul’s 15% share in Nautica on or before August 20, 1996; and demanding the issuance of the corresponding certificate of shares in his name should Dee refuse to buy the same. Dee, denied the request claiming that Yumul was not a stockholder of Nautica. Yumul requested that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records. Yumul’s requests were denied allegedly because he neither exercised the option to purchase the shares nor paid for the acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received by Yumul is held by him only in trust for First Dominion Prime Holdings, Inc. Thus, Yumul filed on October 3, 1996, before the SEC a petition for mandamus with damages, with prayer that the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica and that the certificate of stocks corresponding thereto be issued in his name. The SEC en banc rendered a decision in favor of Yumul. Hence the instant petition. ISSUE: Whether or not Yumul is a stockholder.

RULING: Petitioners contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated. They presented China Banking Corporation Check No. A2620636 and Citibank Check No. B82642 as proof of payment by Dee; a letter by Dee dated July 15, 1994 requesting the corporate secretary of Nautica to issue a certificate of stock in Yumul’s name but in trust for Dee; and Stock Certificate No. 6 with annotation ―ITF Alvin Y. Dee‖ which means that respondent held said stock ―In Trust For Alvin Y. Dee‖. We are not persuaded. Indeed, it is possible for a business to be wholly owned by one individual. The validity of its incorporation is not affected when such individual gives nominal ownership of only one share of stock to each of the other four incorporators. This is not necessarily illegal. But, this is valid only between or among the incorporators privy to the agreement. It does bind the corporation which, at the time the agreement is made, was non-existent. Thus, incorporators continue to be stockholders of a corporation unless, subsequent to the incorporation, they have validly transferred their subscriptions to the real parties in interest. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a stockholder of Nautica, of one share of stock recorded in Yumul’s name, although allegedly held in trust for Dee. Nautica’s Articles of Incorporation and By-laws, as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of one share. Even granting that there was an agreement between Yumul and Dee whereby the former is holding the share in trust for Dee, the same is binding only as between them. From the corporation’s vantage point, Yumul is its stockholder with one share, considering that there is no showing that Yumul transferred his subscription to Dee. Moreover, the contents of the articles of incorporation bind the corporation and its stockholders. Its contents cannot be disregarded considering that it was the basic document which legally triggered the creation of the corporation. Thus, from the point of view of the corporation, Yumul was the owner of one share of stock. As such, the SEC correctly ruled that he has the right to inspect the books and records of Nautica, pursuant to Section 74 of BP Blg. 68 which states that the records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense. As to whether or not Yumul is the beneficial owner of the 14,999 shares of stocks of Nautica, petitioners allege that Yumul was given the option to purchase shares of stocks in Nautica under the Option to Purchase dated December 19, 1994. However, he failed to exercise the option, thus there was no cause or consideration for the Deed of Trust and Assignment, which makes it void for being simulated or fictitious. Anent this issue, the SEC did not make a categorical finding on whether Yumul exercised his option and also on the validity of the Deed of Trust and Assignment. Considering that the issue of the validity of the Deed of Trust and Assignment is civil in nature, thus, under the competence of the regular courts, and the failure of the SEC and the Court of Appeals to make a determinative finding as to its validity, we are constrained to refrain from ruling on whether or not Yumul can compel the corporate secretary to register said deed. It is only after an appropriate case is filed and decision rendered thereon by the proper forum can the issue be resolved. WHEREFORE, the petition is PARTIALLY GRANTED.

21. DAVID C. LAO and JOSE C. LAO, petitioners, vs. DIONISIO C. LAO, respondents G.R. No. 170585 October 6, 2008 FACTS: Petitioners David and Jose Lao filed a petition with the Securities and Exchange Commission (SEC) against respondent Dionisio Lao, president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed for a declaration as stockholders and directors of PFSC, issuance of certificates of shares in their name and to be allowed to examine the corporate books of PFSC. Petitioners claimed that they are stockholders of PFSC based on the General Information Sheet filed with the SEC, in which they are named as stockholders and directors of the corporation. Petitioner David Lao alleged that he acquired 446 shares in PFSC from his father, Lao Pong Bao, which shares were previously purchased from a certain Hipolito Lao. Petitioner Jose Lao, on the other hand, alleged that he acquired 333 shares from respondent Dionisio Lao himself. Respondent denied petitioners' claim. He alleged that the inclusion of their names in the corporation's General Information Sheet was inadvertently made. He also claimed that petitioners did not acquire any shares in PFSC by any of the modes recognized by law, namely subscription, purchase, or transfer. Since they were neither stockholders nor directors of PFSC, petitioners had no right to be issued certificates or stocks or to inspect its corporate books. Pursuant to the law, (RA8799) the petition with the SEC was transferred to the RTC in Cebu City . RTC denied the petition as they (petitioners) do not appear to have acquired shares of stock of the corporation either as subscribers or by purchase from a holder of outstanding shares or by purchase from the corporation of additionally issued shares. Secondly, the claim or contention of the petitioners David C. Lao and Jose C. Lao is wanting in merit because they have no stock certificates in their names. A stock certificate, as we very well know, is the evidence of ownership of corporate stock. If ever the said petitioners acquired shares of stock of the corporation, there is a need for their acquisition of said shares to be registered in the Stock and Transfer Book of the corporation. Registration is necessary to entitle a person to exercise the rights of a stockholder and to hold office as director or other offices. CA modified decision of RTC declaring petitioners as the owners of the stocks nd ordering respondent to issue the corresponding certificates of stocks. However, the CA later on amended its decision (since the ponente voluntarily inhibited himself) affirming the decision of the RTC. ISSUE: WON the mere inclusion as shareholder in the General Information Sheet of a corporation sufficient proof that one is a shareholder in such corporation HELD: No. Petitioners failed to prove that they are shareholders of PSFC. Records disclose that petitioners have no certificates of shares in their name. A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. It is prima facie evidence that the holder is a shareholder of a corporation. Nor is there any written document that there was a sale of shares, as claimed by petitioners. Petitioners did not present any deed of assignment, or any similar instrument, between Lao Pong Bao and Hipolito Lao; or between Lao

Pong Bao and petitioner David Lao. There is likewise no deed of assignment between petitioner Jose Lao and private respondent Dionisio Lao. Absent a written document, petitioners must prove, at the very least, possession of the certificates of shares in the name of the alleged seller. Again, they failed to prove possession. They failed to prove the due delivery of the certificates of shares of the sellers to them. See Section 63 of Corpo Code. In contrast, respondent was able to prove that he is the owner of the disputed shares. He had in his possession the certificates of stocks of Hipolito Lao. The certificates of stocks were also properly endorsed to him. More importantly, the transfer was duly registered in the stock and transfer book of the corporation. Thus, as between the parties, respondent has proven his right over the disputed shares. The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is insufficient proof that they are shareholders of the company. While it may be true that petitioners were named as shareholders in the General Information Sheet submitted to the SEC, that document alone does not conclusively prove that they are shareholders of PFSC. The information in the document will still have to be correlated with the corporate books of PFSC. As between the General Information Sheet and the corporate books, it is the latter that is controlling. As correctly ruled by the CA: ―We agree with the trial court that mere inclusion in the General Information Sheets as stockholders and officers does not make one a stockholder of a corporation, for this may have come to pass by mistake, expediency or negligence. As professed by respondent-appellee, this was done merely to comply with the reportorial requirements with the SEC. This maybe against the law but "practice, no matter how long continued, cannot give rise to any vested right." If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the Corporation could not exercise the rights granted unto him by law as stockholder, with more reason that such rights be denied to a person who is not a stockholder of a corporation. Petitioners-appellants never secured such a standing as stockholders of PFSC and consequently, their petition should be denied. It should be stressed that the burden of proof is on petitioners to show that they are shareholders of PFSC. This is so because they do not have any certificates of shares in their name. Moreover, they do not appear in the corporate books as registered shareholders. If they had certificates of shares, the burden would have been with PFSC to prove that they are not shareholders of the corporation. We note that petitioners agreed to submit their case for decision based merely on the documents on record. Petition is DENIED.